On Monday, September 17, analysts at Zacks upgraded shares of BP p.l.c. (NYSE:BP) The firm raised its rating on the stock from an Underperform rating to a Neutral rating and set a $46.00/share price target. As a result of the upgrade, shares of BP reacted quite dismally, falling nearly 1.40% since the opening of trading on Monday. That said, I wanted to examine the company a bit further and demonstrate why I think both Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) are much better options within the sector.
BP. p.l.c, which is based in London, England, provides fuel for transportation, energy for heat and light, lubricants to engines, and petrochemicals products. Its Exploration and Production segment engages in the oil and natural gas exploration, field development, and production; midstream transportation, and storage and processing; and marketing and trading of natural gas, including liquefied natural gas (LNG), and power and natural gas liquids (NGL). This segment has exploration and production activities in Angola, Azerbaijan, Canada, Egypt, Norway, Russia, Trinidad and Tobago, the United Kingdom, and the United States, as well as in Asia, Australasia, South America, north Africa, and the Middle East. It also owns and manages crude oil and natural gas pipelines; processing facilities and export terminals; and LNG processing and transportation, as well as NGL extraction facilities. The company's Refining and Marketing segment is involved in refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, and petrochemicals products and related services to wholesale and retail customers primarily under the BP, Castrol, and Aral brands. BP p.l.c. also engages in the alternative energy business, as well as offers shipping and treasury services.
Profit Margin Comparisons
In my opinion, a company's margins can often be considered one of the more important key catalysts to consider before establishing a position. That said, I think the larger the profit margin the more attractive the company, and vice versa. In the last 12 months, BP has demonstrated a profit margin of 4.58%, which was outpaced by the profit margins of both CVX and XOM. It should be noted that CVX demonstrated a profit margin of 11.55% and XOM demonstrated a profit margin of 10.37% over the same period. By examining the numbers a bit closer, we see that BP was outpaced by CVX in terms of Profit Margin by a ratio 2.52 to 1 and XOM by a ratio of 2.26 to 1.
Operating Margin Comparisons
In my opinion, a company's margins can often be considered one of the more important key catalysts to consider before establishing a position. That said, I think the larger the operating margin, the more attractive the company, and vice versa. In the last 12 months, BP has demonstrated an operating margin of 6.15%, which was outpaced by the operating margins of both CVX and XOM. It should be noted that CVX demonstrated an operating margin of 16.47% and XOM demonstrated an operating margin of 11.44% over the same period. By examining the numbers a bit closer, we see that BP was outpaced by CVX in terms of Operating Margin by a ratio 2.67 to 1 and XOM by a ratio of 1.86 to 1.
Comparable Returns on Equities
Over the last four quarters, BP has demonstrated pretty mediocre returns on equities, and if similar returns can continue, this catalyst could certainly contribute to the reasons behind why potential investors should avoid the stock. In the last 12 months, BP has demonstrated a return on equities of 15.90%, which when compared to several of the company's competitors, is clearly outpaced by both CVX and XOM. In the last 12 months, CVX has demonstrated a return on equities of 21.59% and XOM has demonstrated a return on equities of 29.02%. By examining the numbers a bit closer, we see that BP was outpaced by CVX in terms of Returns on Equities by a ratio 1.35 to 1 and XOM by a ratio of 1.82 to 1.
BP, in my opinion, is one of the weaker companies within the major integrated oil company sector and if the company continues to be outpaced by the competition, we could easily see BP begin to trade as low as the $36.00/share level. If the company can demonstrate an increase in production and over the next 12-24 months, there could be a small window for growth, but I really don't see that happening.
Disclosure: I am long CVX, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.